BitPay is essentially bitcoin arbitrage. A buyer wants to purchase something with bitcoins. A seller wants to receive payment in USD (or EUR, etc). BitPay buys the bitcoins and gives the seller conventional currency. They're left hanging on to bitcoins. I don't know what they do with the bitcoins once they have them, but I bet they're sitting on them and waiting for their value to increase.
Buying them outright would be easier, but you wouldn't get the 1% transaction fee that BitPay enjoys.
Thanks for the link. It sounds like they buy more bitcoins than they can sell off without crashing the market, so they're probably holding on to most of it. Interesting risks there.
No, see, when the price goes down it's "volatility" but when it goes up it's an "investment". Also, people think a higher exchange rate "validates" Bitcoin and will encourage more trade.